Stop Worrying about Food Stamp "Fraud"

Over at the Weekly Standard blog, Jeryl Bier raised an alarm on Friday about the rise of food stamp (aka SNAP) fraud. The howler in the piece is that although the headline says food stamp fraud is up 30 percent, you soon realize that the fraud rate only rose from 1.0 percent to 1.3 percent. Bier rightly deserves a ding for a ridiculously misleading use of statistics.

In response to Bier, Jonathan Cohn points out the misuse of statistics and makes the straightforward case for food stamps. That case is old but worth repeating here: food stamps stabilize households and the economy in bad economic times, pull millions out of poverty, and have very low overhead. Also, the program runs quite well!

Beyond Cohn’s takedown, I think we should point out that the kind of food stamp “fraud” Bier is complaining about is not even a problem. The USDA calls the type of fraud in question “trafficking,” and it basically amounts to individually swapping out food stamp dollars for actual dollars. Despite what you hear, it is not easy to sell food stamps anymore because they are distributed via debit cards. So what people do to convert food stamp credits into cash is take their EBT card to a store, and charge it for purchases they are not making. Then, the clerk pulls out cash equal to what was fraudulently charged, gives it to the food stamp recipient, and usually takes a cut of the cash as well. So it’s basically like selecting a cash back option when you buy things with a debit card, except it’s illegal and the clerk takes some of it.

Except for the clerk taking some of it, there is no problem with this whatsoever. The problem people presumably have with it is that they imagine that the point of food stamps is to give people food credits, not money. We don’t want to just give recipients more cash, only more food.

But check this out: giving people food stamps is basically the same thing as giving them more cash. Suppose I am spending $300/month feeding my family. Then I get on to SNAP and receive a monthly benefit equal to $100. What do I do? Well, I take $100 of my $300 monthly food budget and replace it with SNAP money. Now, that $100 I used to spend on food each month is freed up for me to spend on other things. Because money is fungible, giving me vouchers for a certain kind of spending that I am already doing is no different than just giving me cash.

All trafficking does is short circuit this process. Instead of using the fungibility of money to convert SNAP dollars into actual dollars, a trafficking person just does it directly. There are all sorts of reasons a poor person would want to do this, but more importantly, it’s not substantively different from swapping out SNAP dollars for cash in the legally permitted way detailed in the above paragraph.

To be sure, it is horrible that the clerks involved in the trafficking get a cut of the money. If you are going to give poor people money, you want them to get all of it. But if we want to cut the clerk out (and we do), we can do that by allowing people to receive real dollars instead of SNAP dollars in the first place. There is no reason to give someone SNAP dollars if they’d prefer real dollars instead. People labor under the delusion that it ensures the money goes to buying food, but that’s an economically confused understanding of how money works.

So ultimately, the problem with Bier’s post is not just that it grossly exaggerates the amount of trafficking fraud going on, but also that trafficking fraud itself is totally fine. I don’t care about it and neither should you.

It is wrong that we have economic institutions that leave many parents with resources so inadequate that they cannot buy things for their children. Why not help them out and pump money back into the economy?

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